Aditya Birla Nuvo in talks with global PE investors

Aditya Birla Nuvo is in talks with global private equity players Blackstone, Carlyle and KKR to sell shareholding in its proposed holding firm for its financial services business. The financial services holding company will house its asset management, insurance, stock broking, wealth management and private equity businesses.

Nuvo, in a joint venture with Canada's Sun Life, holds 74 per cent in its life insurance and 50 per cent in its asset management company under Birla Sun Life. It recently acquired Apollo Sindhoori from the Chennai-based Reddy family to scale up its stockbroking business. It also increased its stake in the distribution and wealth management company Birla Sun Life Distribution by buying Sun Life’s 50 per cent stake.

“The company needs equity infusion to sustain the growth momentum for the insurance, asset management and other financial services businesses,” said a leading PE player who did not wish to be identified. “The talks have been initiated but it will take at least three to four months before anything concrete comes up,” he added.

An A V Birla spokesperson said, “We do not comment on market speculation.”

The life insurance venture — Birla Sun Life — saw operating losses rise 57 per cent to Rs 686.56 crore during the year-ended March 2009, against Rs 437.60 crore in 2007-08. The market share of the fifth largest private life insurer went up to 10.4 per cent in the last financial year from 7.8 per cent in the previous year. The company is focusing on the life insurance business as it expects over half the revenue to come from this sector by the end of 2010-11, the year when Birla Sun Life Insurance is expected to break even.

The company had earlier said that the group had lined up capital expenditure of around Rs 1,000 crore during the current financial year for the business, while another Rs 800 crore will be required in 2010-11.

“The company earlier expected relaxation on the foreign direct investment norms for the insurance business to raise equity; but since it is not expected in the near term, it is looking at an alternative route for the capital infusion,” said another PE player, who confirmed the initiation of talks with the PE firms.

The company requires equity to expand because its debt is already high. At the end of the last financial year, it had Rs 4,300 crore of debt against a net worth was Rs 3,744 core. The company also had a treasury surplus of Rs 800 crore, which gives it a net gearing of 0.93. This gives Aditya Birla Nuvo little room to raise fresh debt.